Breaking down N.Y.'s investigation into NFL ticket sale practices
You would expect prices for NFL tickets to be high, but might they be unlawfully high?
That question is now under official consideration in the state of New York. On Thursday New York attorney general Eric Schneiderman released a 43-page report, Obstructed View: What’s blocking New Yorkers from Getting Tickets, that criticizes the ticket sale practices of the NFL and other sports and entertainment companies as deceptive and unfair. Obstructed View, which recommends substantial industry and legislative changes, is connected to an investigation by Schneiderman’s office into whether ticket practices adopted by the NFL and other sports companies might run afoul of antitrust laws.
Schneiderman, who two years ago challenged the NFL on the legality of teams asking college players about their sexual orientation and who more recently has sued DraftKings and FanDuel over their capacity to conduct business in New York, is focused on the so-called “secondary ticket market.” This market refers to the resale of tickets. In scrutinizing the sale of NFL tickets, Obstructed View expends considerable energy on “resale price floors,” which establish that tickets can’t be resold for less than a certain value—the “floor.” The NFL Ticket Exchange, which is operated by Ticketmaster and is described as “the only NFL approved ticket exchange for tickets,” utilizes resale price floors. As Obstructed View asserts, resale price floors might unnecessarily disrupt the resale of NFL tickets. “If a season ticket holder wants to sell his or her tickets for a lower price than he or she paid,” Obstructed View reasons, “he or she may be unable to do so, or may need to use a complex procedure to do so on another platform.” Along those lines, in a competitive market based on supply and demand, some tickets might sell for less—potentially far less—than price floors would allow. As a consequence, consumers might be required to pay more for NFL tickets than they ought to pay in a competitive market.
To be clear, Schneiderman’s investigation into whether ticket prices are unlawfully high extends far beyond the NFL and far beyond sports: much of Obstructed View concerns prices for concert tickets rather than sports tickets. Also, resale price floors are merely one of several ticket price mechanisms that are problematic to Schneiderman. For example, Obstructed View sharply criticizes so-called “ticket bots”—software that buys tickets at high speeds, thereby preventing consumers from taking advantage of good deals, and in turn selling those tickets back to consumers at higher prices.
While Obstructed View is not about the NFL per se, the NFL should nonetheless be troubled by Schneiderman’s investigation. Schneiderman is a fierce advocate for consumer rights and he has repeatedly exhibited a willingness to take on major companies and institutions in court. Also, although Schneiderman’s jurisdiction is limited to New York, his interest in ticket prices could spark other states’ attorney generals to launch similar investigations—executives of DraftKings and FanDuel certainly know all about how Schneiderman taking the lead on a legal fight can prompt other states’ attorneys general to follow his lead.
Potential antitrust problems for the NFL
Federal and New York antitrust laws are designed to ensure that consumers reap the benefits of competitive markets. Those benefits include lower prices, extensive product choices and greater innovation in the marketplace of goods. Along those lines, antitrust laws attempt to prevent businesses—especially competing businesses—from collaborating and conspiring in ways that unreasonably harm consumers.
The NFL consists of 32 competing businesses: the 32 franchises. Schneiderman will surely examine whether all or some of those 32 competing teams have conspired with Ticketmaster on using resale price floors to both artificially inflate NFL ticket prices and to restrict access to their purchase. Among potential antitrust theories relevant to this examination will be price fixing, which occurs when businesses collude to keep prices at a higher level than those prices would exist in a competitive marketplace. A related antitrust theory is resale price maintenance, which arises when price restrictions are placed on the seller of a particular item, such as a game ticket.
Should Schneiderman find sufficient evidence of antitrust violations, he could sue the NFL and its franchises as a means of enforcing antitrust laws. Such a move would trigger a legal battle that might take years to play out and would likely involve extensive testimony by experts about the economics of ticking pricing. It could eventually compel the NFL to alter its ticket selling practices. Even if Schneiderman does not find the NFL at fault, the league and its franchises may be asked—if not compelled by subpoena—to share sensitive financial information and businesses strategies with Schneiderman as part of his investigation. For a league as secretive as the NFL, the prospective of divulging confidential information is likely both troubling and bothersome.
Potential antitrust defenses for the NFL
This is an important caveat when hearing about a professional sports league under investigation: it might amount to nothing. The mere fact that a state or federal law enforcement officer is investigating a business or industry does not mean that any laws were broken. Such investigations often lead to no action.
Also, neither an expensive ticket price nor restrictions on the resale of a ticket automatically indicates unlawful conduct. To be sure, going to an NFL game is an expensive endeavor. According to Statistia.com, the average price of an NFL ticket is $79.16 or $316.64 for four tickets. This data, however, is not terribly surprising: the NFL is most popular sports league in the United States and so it's to be expected that there will be a high demand for tickets. The law generally permits tickets to be sold for as high as the seller wishes to sell them. If NFL game tickets are priced at a high level because of consumer demand—rather than price manipulation—those prices are likely compatible with antirust laws.
The law also permits certain restrictions on ticket sales as a means of both preventing illegal scalping and combating counterfeiters who intend to flood the market with fake tickets. The NFL is understandably concerned about the potential damage that can surface when fans are tricked into buying counterfeit tickets. A court would therefore grant the NFL some degree of latitude in preventing the sale and distribution of counterfeit tickets.
The NFL should also be encouraged by U.S. District Judge Maxine M. Chesney’s decision in November 2015 to dismiss an antitrust lawsuit brought by StubHub against Ticketmaster and the Golden State Warriors. According to StubHub, Ticketmaster and the warriors had conspired to direct Warriors’ season ticket-holders to resell tickets only through Ticketmaster. This arrangement effectively excluded StubHub, an eBay owned online marketplace for the sale of tickets, and other businesses that are engaged in the reselling of tickets. StubHub argued this arrangement led to diminished competition in the resale of tickets and higher prices for consumers. The company also maintained that Warriors’ season-ticket holders were misled into believing that transactions with Ticketmaster were more secure than using alternative methods of ticket resale, including StubHub.
Judge Chesney rejected StubHub’s arguments, however, finding the available evidence of the Ticketmaster-Warriors arrangement to be compatible with antitrust law. While this case is different from the NFL’s use of resale price floors in a number of ways—it arose in a separate jurisdiction (California), centered on federal law and involved an NBA team rather than the NFL, among other variances—it nonetheless is encouraging for the NFL, which similarly restricts the resale of tickets through its collaboration with Ticketmaster.
SI.com will continue to monitor and analyze the New York attorney general’s investigation into NFL ticket prices.
SI legal analyst Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law.